Criticisms against the European Commission’s EMIR 3.0 proposal have crossed the Atlantic. In an opinion piece syndicated by The Washington Post, Bloomberg columnist Marcus Ashworth gives his take on why the EU’s attempt to lure derivatives clearing away from London is a doomed cause.
If the EU had thought that disallowing UK-regulated electronic trading platforms post-Brexit would bring business back into the bloc, they have been sorely mistaken. Marcus Ashworth points out that according to post-trade network Osttra, 51 percent of euro-denominated interest rate swaps in March this year happened in the US. The EU captured just 35 percent, and the UK captured 14 percent, a drastic drop from the 70 percent it saw even as recently as 2020. Instead of turning back into the EU, trades have funnelled into the US.
“The logic of withholding approval from UK networks, with the effect of pushing business 3,600 miles across the Atlantic to a distinctly different regulatory regime over which the EU has neither control nor any real influence, escapes me,” writes Marcus Ashworth. “While trading has fled, clearing has very much stayed put in London.”
Financial services commissioner Mairead McGuinness wants all euro-denominated derivatives to be cleared within the EU by June 2025 but Marcus Ashworth does not think that it would happen. London Clearing House (LCH) currently clears almost 100 percent of derivatives activity in Europe. This is unlikely to change as long as no European counterpart exists. He also raised the point that counterparty risk is best centrally managed, and that splitting collateral across multiple venues can only increase risk.
Marcus Ashworth’s stance matches that voiced by members of the industry in the EU, as detailed in this article. The rationale behind the European Commission’s proposal and the issues surrounding it are covered here.